Many smaller employers fall into the trap of believing that they are immune to some of the compliance requirements that often are associated with larger, more sophisticated employers. That could be a costly mistake. Regardless of an employers’ size, ERISA requires that a Plan Sponsor and Plan Administrator (employer) have a written plan document and summary plan description (SPD) for each and every Health & Welfare Benefit [medical, dental, vision, group term life, AD&D, STD, LTD, Wellness, EAP and any Voluntary Benefits pre-taxed under a 125 plan (AFLAC, etc.)].
IF an employer is audited by the DOL, they are leaving themselves exposed to penalties if they do not have a properly structured SPD. The solution for many employers is a wrap document.
What are Wrap documents and why are they used?
ERISA requires that all employers provide every participant in their employee benefit plans (regardless of whether the plan is fully insured or self-funded) with a Summary Plan Description (SPD). While many insurance carriers provide documents for distribution, these documents often do not contain all of the required provisions and information to be considered an SPD. The solution is what’s referred to as a Wrap document. A Wrap document “wraps around” the insurance policy to meet the requirements of an SPD. In other words:
Insurance policy + Wrap = SPD
A Wrap document can also be used to bundle documents for more than one type of benefit together to form a single plan.
Why are Wrap documents important?
An SPD is the primary method for informing participants about their rights and benefits under an employee benefit plan. ERISA places the responsibility for SPDs on the plan administrator—not the insurance carrier or the third party administrator. The plan administrator (usually the employer) is responsible for furnishing SPDs and failure to furnish ERISA-compliant SPDs can create potential liability.
Additionally, for any benefits plan(s) with more than 100 participants on the first day of the plan year, Wrap documents play an important role in the filing of Form 5500s. Plans subject to the Form 5500 filing requirements may want to file a single Form 5500 (as opposed to a filing for each individual plan). ERISA allows plan sponsors to combine ERISA plans into a single plan for ERISA and Form 5500 compliance. However, the intent to form a single plan must be reflected in the plan documents. Employers wishing to form a single plan should have a Wrap document in place reflecting the existence of a single plan. If an employer is already filing a single Form 5500, you should check to ensure a Wrap document is in place supporting this filing.
TIG Advisors can help!
We can guide our clients down a path to compliance. Our compliance partners prepare Wrap documents to help you satisfy the requirement to provide a compliant SPD and to form single plans for Form 5500 filing purposes. Please contact our office to start the process or to learn more.